I am a securities law attorney at Wiand Guerra King in Tampa, Florida, where my practice includes complex commercial litigation and regulatory matters, with a focus on securities and financial services litigation. I am also part of the team representing the court-appointed receiver of Arthur Nadel's $400 million Ponzi scheme, and have particular expertise in the area of Ponzi schemes. In addition to my law degree, I also hold a Masters in Business Administration from the University of Miami. In my spare time, I also publish the Ponzitracker blog, which tracks the proliferation of Ponzi schemes both nationally and internationally. Feel free to follow on Twitter at @Ponzitracker. All opinions expressed are solely that of the Author. This blog is not intended, nor should it be construed, as legal advice.

Feds Halt Alleged $600 Million ZeekRewards Ponzi Scheme: How It Happened And What's Next

On Friday, August 17, 2012, the Securities and Exchange Commission (“SEC”) filed an emergency action in a North Carolina federal court, alleging that ZeekRewards and its founder, Paul R. Burks, were involved in one of

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the largest Ponzi schemes in history. The move came as many began to question the legality of the operation and whether its promised 1.5% daily returns were simply ‘too good to be true.’ These fears were confirmed on Friday, with the unavailability of Zeek’s website and the closure of its Lexington, N.C. headquarters serving as an ominous sign leading up to the SEC’s announcement Friday evening that it had halted the scheme as it teetered on the “verge of collapse”. The sheer number of victims, which authorities estimate tops 1 million, likely earns Zeek the infamous distinction as the largest Ponzi scheme in history by the number of investors, and will add a layer of complexity never seen before in trying to unravel the scheme and distribute funds to investors. For sake of comparison,the number of investors in Bernard Madoff’s $65 billion Ponzi scheme, the largest in history by investor losses, was “only” in the thousands.

According to authorities, Zeek consisted of two related operations, Zeek Rewards and Zeekler. Zeekler was an international penny auction website that offered users the ability to win merchandise by placing one-cent “bids”. Zeek Rewards was the investment arm of the operation, offering users the ability to share in up to 50% of daily “profits” by completing a daily set of tasks that included soliciting new customers and selling or giving away “bids” to new users. At the end of the day, users were paid “Profit Points” usually totaling 1.5% of their investment, and were given the choice either to receive their “profits” in cash or rollover the points to compound future returns. Many chose to re-invest, and due to the compounding nature of the Profit Points and the steady stream of new customers, authorities allege that the number of outstanding Profit Points was nearly 3 billion at the time the scheme was halted. The scheme depended on investors choosing to reinvest their profits, for according to the SEC, Zeek would have been insolvent in a matter of weeks, if not days, had investors chosen to receive their profits in cash.

No doubt in efforts to avoid the scrutiny of federal and state authorities, Zeek made it mandatory for new users to acknowledge that they “are NOT purchasing stock or any other form of ‘investment’ or equity” before becoming a member. While Zeek dubbed the operation as an “e-commerce subscription”, the SEC disagreed, charging that, in reality, the company was engaging in the fraudulent offering of unregistered securities.

In its announcement, the SEC also stated that Paul Burks, Zeek’s founder, was cooperating with authorities and had agreed to pay a $4 million civil penalty and relinquish all interests and assets in the company – all without admitting or denying any culpability. Burks cooperation should be seen as a positive sign for investors, as his knowledge of the scheme will significantly help authorities unravel the operation and account for all assets. According to the SEC, Zeek has paid over $375 million to investors to date, and currently holds approximately $225 million in investor funds in financial institutions all over the world. These funds were frozen in an emergency asset freeze granted by the North Carolina federal court, meaning that they cannot be dissipated or misappropriated during the course of the investigation.

Zeek and its affiliates have attracted scrutiny in recent weeks as investors increasingly began to doubt the operation’s legitimacy. According to David Dalrymple, President of the Winston Salem Better Business Bureau (“BBB”), the BBB had been receiving complaints for some time, and within the last 30 days alone had received 30,000 inquiries about Zeek. Said Dalrymple, “In twelve years as the President here, I cannot compare that to any level of inquiry for any other business. Ever.” Dalrymple stated that the BBB’s analysis of Zeek had raised many red flags, and that it immediately notified criminal authorities.

While investor losses pale in comparison to those experienced by Madoff or Stanford investors, the sheer number of Zeek investors is on a magnitude that has never been dealt with before in a receivership or bankruptcy context. To illustrate, assuming Zeek had one million investors, a simple 1-page summary for each investor summarizing contributions and withdrawals, stacked together, would be 101.3 meters high, or roughly 300 feet. The staggering number of victims suggests that investigation of the fraud and establishment of a distribution process will likely be a drawn-out process involving hundreds, if not thousands, of people.

Going forward, the first step will be the appointment of a receiver by the North Carolina federal court. In an Order filed late Friday, United States District Judge Graham Mullen appointed Kenneth Bell as the temporary receiver, empowering him to take control of Zeek’s assets and begin an investigation. Mr. Bell is a Partner at the Charlotte office of McGuireWoods, where his practice includes white collar crime. It is likely that Bell took control of Zeek’s offices yesterday immediately after the Order was signed. In the Order, Judge Mullen also ordered Burks to provide a list of all assets, employees, and creditors of Zeek to the Receiver within 10 days, and a full accounting of assets, bank accounts, and other property within 30 days.

For now, the North Carolina Attorney General has established a hotline for concerned investors at (919) 716-6046.

(08/20) EDIT – Forbes has confirmed that Burks is being represented by Noell Tin of Tin Fulton Walker & Owen, a Charlotte, NC law firm.

(08/21) EDIT – The Receiver has announced the establishment of a Receivership website at www.zeekrewardsreceivership.com. Victims wishing to communicate with the Receiver should email info@zeekrewardsreceivership.com.

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Another SEC miss that will cost investors that can’t afford to lose it. Zeek illegally solicited over 1 million “investors” for over a year and a half according to the SEC filing.

$3 billion in profit points is a huge loss for low to mid income investors and might have more wide reaching impact than is being reported. Considering Zeek only had $225M in cash – there is going to be a huge shortfall.

Where was the SEC and why shouldn’t they be liable for being asleep at the wheel once again?!?

I feel awful about this. I was a “Zeek Affiliate” or better now an investor and knew several other investors involved in this. All I can say is this thing was one well dressed up ponzi and fooled a million. I looked at the numbers and said this is amazing or this is incredible where I should of said this is impossible. So many high level reputable people from other mlm companies were invested that I knew personaly from being involved in a previous mlm. They had the big names “Kieth Laggos” “Kevin Grimes” “Greg Caldwell” the list goes on. The worst thing about this is not the money being lost in my opinion, (though others invested alot more and have suffered greivously) it is all the hope and just the heart break of it. I’m 18 years old and I count myself lucky to have learned this lesson early on in life. I personaly believe this was set up from the start to be a scam although I don’t believe it was a ponzi to start with. I think it started with the penny auctions paying affiliates to an extent in the begining and as investor numbers skyrocketed it evolved into a ponzi scheme. I truly think this was planned to happen, I think they took advantage of this economy and peoples desperatness to get a decent roi, and i think Paul Burks and Dawn Wright Olivares need to pay dearly for this. In my opinion they are CRIMINALS. SHISTERS, AND SOME PRETTY DAGGONE GOOD CONARTISTS. 3 BILLION bids bought and just 0.25% used in the auctions. I know penny auctions are making alot of money now (and i also feel the took advantage of that fact aswell to suade people). To support a large number of affiliates who had around 500000 VIP points and where making 8000 daily of the Retail Profit Pool??? (which is actually more than 1.5% return) is absolutly unreal and frankly impossible. Lets say only 10000 investors out of 1000000 were at the 500000 point. What is 8000 x 10000? (80000000) or EIGHTY MILLION DOLLARS. If they all just decided to take out 30% a day it would be 24000000 or TWENTY FOUR MILLION A DAY. Now lets see how much it would be in one week if every day they drew 30% and drew weekly. Whats twenty four million times 7? I don’t care how many drops you have. I’m no genius but i don’t think that any penny auction on earth could support that. How did we fall for this? I can’t believe that I or my family members would do this. I am actually glad that the SEC shut this thing down when they did. And it sickens me that people that were profiting off of this thing want to keep it going after so many people go hurt. It’s a classic example of people being blinded by greed and hope and dreams. Hardly any effort was involved in making money. Nothing in life comes withouth hard work. I personaly have only seen 750 come out of a 5000 dollar investment made by a family member. I am truly sorry for everyone who has fallen into this crap.

I am interested in finding out if investors are going to get their money back or at least part of it. I recruited people from foreign countries whom I manage their accounts, in other words I represent them. Will they get their money back as well?

Thanks for reading. At this point, its simply too early to determine any approximation of expected recovery. Both the SEC and DOJ have methods of distributing any funds or penalties back to victims (Fair Fund, Remission process, etc), and the Receivership will also likely seek the establishment of a claims process and method of distribution once the investigation(s) concludes.

I feel really bad for all the zeek rewards members. I’ve just joined Zeek Rewards for less than a week and it got shut down already. Before I joined, I had plan “B”. I’ve decided to join a new business only call Ultimate Power Profit, or Paradigm shift. This is similar to Zeek but better. Let me know if you are interested at 85soua.yang.upp@gmail.comUltimate Power Profits

I feel really bad for all the zeek rewards members. I’ve just joined Zeek Rewards for less than a week and it got shut down already. Before I joined, I had plan “B”. I’ve decided to join a new business only call Ultimate Power Profit, or Paradigm shift. This is similar to Zeek but better. Let me know if you are interested at 85soua.yang.upp@gmail.comwww.UltimatePower Profits.com

I feel really bad for all the zeek rewards members. I’ve just joined Zeek Rewards for less than a week and it got shut down already. Before I joined, I had plan “B”. I’ve decided to join a new business only call Ultimate Power Profit, or Paradigm shift. This is similar to Zeek but better. Let me know if you are interested at 85soua.yang.upp@gmail.comwww.UltimatePowerProfits.com

Very shocking,…..I spent many hours by email and by phone advising others against this in Australia,…..I warned everyone I knew that was approached by this “opportunity”,.. not to get involved in this,……no one listened,……no one,….they all jumped in ,..some of them with thousands of dollars,..a couple even jumped in knowing it may be a ponzi scheme,..they just wanted to be first in and get their share before it might collapse,…shocking,….. I actually have a legitimate Marine Investment Fund business based in Australia which required and still requires more investment partners,.. and some that had the choice between the two, over the last 6-8 months or so……chose the Zeek Ponzi Scheme,..my Marine Venture Fund is still ticking along with marine assets,..and God will provide as required,as its not a “Ponzi get rich quick scheme”.